A Penny for Your Roads?
Georgia Tries a Regional Sales Tax Increase to Fund Transportation Projects
By Sean Slone, CSG Senior Transporation Policy Analyst
July 31 could be an important day for the future of transportation in Georgia—and perhaps the nation. That’s the day of the Georgia primary, when voters in the Peach State will head to the polls to decide whether to approve a 1-cent sales tax increase.
Depending on whether they live in Atlanta, Columbus, Valdosta or Savannah, voters will make their decisions based on how they feel about a different list of carefully selected transportation projects for their region. The outcomes of the referenda in the state’s 12 regions could serve as a bellwether to other states looking for answers to their infrastructure needs and trying to move beyond the unsustainable gas tax as transportation revenue source.
“The reason we’re doing this is the current funding mechanism for transportation is not adequate in Georgia to meet all the needs,” said Todd Long, director of planning for the Georgia Department of Transportation. “The gas tax is in trouble … for a couple of different reasons. One is you and I are driving more fuel-efficient cars, so the mileage per gallon of the average American is going up and up and up.”
And gas tax revenues have started to go down.
Regional Option Sales Taxes
But to understand how Georgia arrived at the regional option sales tax to fund transportation projects, it’s necessary to look back more than a decade, according to Brad Alexander, a former chief of staff to Lt. Gov. Casey Cagle. Alexander now works for one of the Atlanta-area consulting firms enlisted to make the case for the referendum to Georgia voters.
“We’ve known for a long time that our tax system is just sort of fundamentally broken in Georgia when it comes to raising funds to pay for transportation infrastructure,” he said in January at the Transportation Research Board’s annual meeting in Washington, D.C. “And this sort of resulted in this annual tradition where the contracting community would come up to the Capitol at the beginning of every year and say ‘Gosh, we’re out of money. The roads are falling apart. This is terrible. Can’t you guys just vote to raise the gas tax?’
“It seemed readily apparent to the contracting community that that’s what ought to be done.”
But year after year, the contracting community was unable to convince legislators concerned about re-election to raise the tax, Alexander said.
“After about 10 years of trying this, we finally got a little bit smarter and decided that we were going to have to have a voter approval component,” he said, “because if we didn’t have a legislature that had the political courage to go raise taxes, we felt like we could at least take a shot at convincing the voters to do it.”
In 2008, a coalition began coming together to push for legislation that would authorize a referendum vote. But setbacks and tough decisions lay ahead.
“Probably the biggest mistake we made was we let our own coalition fracture,” Alexander said. “We had the contracting and consulting community over here on one side (in favor of a) statewide plan and the chambers of commerce and business community on the other side (in favor of a regional plan). And consequently, we were arguing with each other as much as we were with our opponents.”
It wasn’t until 2010 when all the stars aligned. Then-Gov. Sonny Perdue, who had previously remained on the sidelines, got involved. The contractors and the business community came together behind legislation that benefitted from lessons learned about how the project selection process should go, how to sell rural lawmakers on the idea and other issues.
How It Works
The General Assembly approved House Bill 277, the Georgia Transportation Investment Act, in the spring of 2010. It allows voters to decide whether to levy a 1 percent regional sales tax to fund a list of transportation projects over a 10-year period. Each of the state’s 12 regions established a Regional Transportation Roundtable—comprised of a county chair and one mayor from each county—which developed criteria for the selection of projects in consultation with Long.
“We went through a very detailed process, spelled out in the bill, of project selection. And by October of last fall, … each of the 12 regions finally adopted their list of projects for the voters to consider,” Long said.
If the referendum is approved in all the regions, up to $19 billion will be invested in the approved transportation projects. All the funds collected in a region will stay in that region; 75 percent will go to the approved regional projects and the other 25 percent will be used on local projects chosen by city and county officials. Atlanta, the state’s major population center, would receive the most—about 45 percent of total revenues.
Now comes the hard part—convincing Georgians that it’s worth paying more when they shop to allow the state to tackle these projects in less time than it would take if they had to rely on federal dollars.
Long said the message to voters is somewhat different in Atlanta and other population centers from the message in rural Georgia.
“In the rural areas, it’s all about jobs, economic growth,” he said. “Particularly in southwest Georgia; they’re really hurting for jobs. … In the doughnut counties (around Atlanta) that have really experienced a lot of growth, … and some of the other regions like Savannah, Columbus, Augusta, they have congestion relief (needs) as well.”
But Long and his colleagues at the Georgia Department of Transportation are not allowed to advocate for the referendum, so the job of doing that is now in the hands of people like Doug Callaway, executive director of the Georgia Transportation Alliance, an arm of the Georgia Chamber of Commerce. He oversees the statewide referendum campaign called Connect Georgia, which includes a bipartisan group of veteran campaign strategists.
“Someone a long time ago once said that status quo was Latin for ‘the mess we’re in,’” Callaway said. “Well almost every state’s in that same mess. The question is, ‘What are you going to do about it?’ And a lot of other states don’t have the same opportunity that Georgia does, so we hope to take full advantage of this and hope to be a model for a lot of our sister states.”
Callaway cited a recent news article in which economists predicted Georgia’s employment would not rebound to prerecession levels until 2020. While that would be daunting news for most states, Georgia can see a light at the end of the tunnel.
“At least we have an option to cast a vote in favor of ourselves later this year in order to help turn our economy around, help create jobs, help provide safe mobility for our citizens,” he said.
The regional referenda still face challenges.
The Georgia Tea Party has mobilized in opposition to the tax increase. But even outside the anti-tax crowd, some question whether the sales tax is really the right vehicle to fund infrastructure, arguing it’s not a true “user fee” in the tradition of the gas tax, which is paid only by those who actually use the roads. Long sees it a different way.
“We’re paying a gas tax for our roads, but a lot of our money is going toward transit,” he said. “A sales tax is kind of universal. Everybody who buys something, that product is using the transportation system to get there. So even a guy who doesn’t have a car, but he lives in a condo and he buys, let’s say, a TV. Well that TV got to his condo somehow or other. So he’s paying a fee partly for getting that product to the end market. That’s how I look at it.”
Beyond the arguments over tax policy, another major hurdle may be when the vote is scheduled to take place—in the July primary rather than the November general election.
“The issue with the date being July 31 is the arbitrary nature of the voter profile in a primary,” said Connect Georgia’s Heath Garrett. “It creates real disparities between certain regions, because some regions have a historically high voter turnout in primaries and others don’t, and some regions have more activity on other parts of the ballot than some do.”
Still Garrett believes he and his colleagues have a strong case to make to Georgia voters.
“The bottom line is that this is the single largest economic development opportunity in the state of Georgia’s history since the Atlanta airport opened,” he said. “It’s also potentially the largest combined economic development opportunity for any state in the country in the next year, when you talk about $19 billion in direct transportation investment.
“And at the end of the day, this entire opportunity is about real job creation, not mythical job creation, both in the short term and the long term. It’s about road safety and repair. And it’s about local communities being able to control their transportation destiny locally.”
15 States to Watch in Transportation Financing
States across the country are looking at innovative ways to fund transportation projects. Here are 15 states to watch as 2012 proceeds.
Arkansas: Voters will decide in November whether to approve a constitutional amendment that would raise the state’s 6 percent sales tax to 6.5 percent to fund a $1.8 billion program to connect the state with four-lane highways.
California: Some are saying it’s long past time for a gas tax increase there. The state hasn’t raised the tax since 1994 and is looking at a $300 billion deficit between what the state needs to address infrastructure needs and what it expects to bring in.
Colorado: State and regional transportation officials are considering asking voters to approve new taxes in 2012 to improve roads and help complete the FasTracks rail lines in Denver. The state hasn’t raised its gas tax in nearly 20 years.
Florida: The state Department of Transportation is seeking more authority from state lawmakers to expand the use of toll roads. It would like to use the money for new road or bridge projects or for adding tolled express lanes to some major highways.
Georgia: Officials will ask voters to decide on a series of regional referenda to fund transportation projects with a 1 percent sales tax. Two things to watch: Whether the state’s public education campaigns to inform voters about the specific projects they would be funding will convince voters; and whether those opposing the tax increases can gain any traction. Will voters vote to raise taxes if they know exactly which local and regional projects their tax money is funding? Many states will be watching the outcome in Georgia very closely.
Iowa: Gov. Terry Branstad’s Transportation 2020 Citizen Advisory Commission recommended raising from 5 to 6 percent the registration fees for new vehicles—the same as the state sales tax, and establishing a new user fee for hybrid vehicles. Estimates show the recommendations could generate between $184 million and $320 million in new revenue for transportation needs. A competing plan includes a phased-in gas tax increase of 5 cents per gallon beginning Jan. 1, 2013, and another nickel increase on Jan. 1, 2014.
Maryland: Gov. Martin O’Malley and Senate President Thomas V. “Mike” Miller will likely push for a 15-cent gas tax increase proposed by a blue ribbon commission. The state hasn’t raised its gas tax in 20 years and the increase would give Maryland the highest gas tax in the nation. But O’Malley has said a one-time hike likely won’t be enough to solve the state’s long-term funding problems, so he also supports another commission recommendation: indexing the tax rate to inflation. The commission also proposed a 50 percent increase in car registration fees and higher titling taxes. Some Maryland lawmakers question whether additional revenues are needed at all, arguing that state officials in recent years have shifted millions in dedicated transportation funds to other projects.
Michigan: Gov. Rick Snyder put forward a plan to restructure the state gas tax as a percentage of the price of fuel and allow municipalities to raise vehicle licensing fees. Republican Sen. Howard Walker of Traverse City has proposed repealing the state’s 19 cents per gallon gas tax, but adding to the 6 percent sales tax, with proceeds going to the Michigan Transportation Fund. Walker’s argument is that everyone benefits from the roads, not just those who use them. But that may be anathema to anyone who supports a user pays/user benefits model in transportation funding.
Missouri: The state Department of Transportation is said to be exploring the possibility of doubling the state gas tax over 10 years to help pay for a widening of Interstate 70 between St. Louis and Kansas City. But without adjusting the tax to account for inflation and without additional funding sources—such as tolling revenue or another tax increase of some kind--the gas tax increase by itself could fund truck-only lanes on I-70 but little else during that decade. Gov. Jay Nixon has said tolling is not in his short-term plans. Tolling on I-70 would require special federal permission since it is an existing interstate.
New Jersey: Gov. Chris Christie has declined to consider a gas tax increase, but he wants the legislature’s permission to borrow several billion dollars to fund road and bridge projects.
New York: Gov. Andrew Cuomo wants to overhaul the state’s tax system and use public-private partnerships to fix infrastructure. He also wants to create an infrastructure fund to finance the repair and development of highways, bridges and major construction projects. Two Republican senators—Charles Fuschillo and Marty Golden—also are calling for a law to allow the state to utilize public-private partnerships to help finance road and bridge improvements. They’ve sponsored Senate Bill 5445, which gives the state the authority that 31 other states and Puerto Rico already have.
Oklahoma: Gov. Mary Fallin has a plan to fix all 706 structurally deficient bridges in the state highway system by 2019. She’s asking the legislature to increase the amount of state revenue set aside for road and bridge repairs by $15 million a year and raise the road and bridge maintenance cap for the eight-year period to $550 million. She expects that with expected growth in state revenue from anticipated increases in economic activity; no tax, toll or fee increases will be necessary.
Pennsylvania: Three House Democrats have called for passage of legislation to fund mass transit systems and highway and bridge repairs. They have called for raising driver fees, uncapping the wholesale tax on gasoline and increasing fines in an effort to raise $2.7 billion for transportation.
Virginia: Gov. Bob McDonnell and Transportation Secretary Sean Connaughton have pursued a number of different strategies in the past couple of years—from creating an office of public-private partnerships to revamping the state infrastructure bank to using audits to turn up unused transportation funds. Despite everything, Connaughton said Virginia will be out of state money to build new roads by 2017. One of the major initiatives lawmakers in Richmond will consider this year is whether to incrementally increase the portion of the state sales tax dedicated to transportation to .75 percent from .5 percent over the next eight years. That’s expected to generate $110 million in new transportation funding for maintenance. McDonnell also wants to increase to 75 percent the share of year-end surpluses diverted to transportation, dedicate portions of tax revenue growth attributable to transportation infrastructure projects back to transportation (a version of tax increment financing or TIF), and dedicate to transportation the first 1 percent in revenue growth over 5 percent each year. The TIF proposal would be somewhat unique and innovative since it is something normally done at the local level to pay debt service on infrastructure.
Washington: A task force appointed by Gov. Chris Gregoire recommended that the state raise $20 billion during the next 10 years to fund the transportation system. Revenue options likely to be considered include adding 15 to 20 cents per gallon to the state’s 37.5-cent fuel tax rate, which could raise between $3.3 billion and $4.7 billion. Also being considered: a 10 percent increase in the gross vehicle weight fee for trucks, $100 fees for electric vehicles, a statewide motor vehicle excise tax and a vehicle miles traveled tax. Washington likely will do more tolling too, although maybe not right away. Voters in November nixed a ballot initiative that would have severely limited the use of tolls. Any package of revenue options will likely go to the voters; lawmakers need a two-thirds majority to pass taxes but only a simple majority to send a tax package to voters. A survey sought by the governor’s task force found 59 percent would support increasing transportation taxes and fees to fund infrastructure.